Today the Bank of England voted a majority of 5-4 to raise the rate once again, from 0.25% to 0.5% – as profoundly anticipated by markets. The first back-to-back hike since 2004 comes after December’s rise from 0.1%, where Britain’s major central bank became the first to push rates up since the pandemic.
The Monetary Policy Committee chose to increase the rate for the second time in quick succession due to growing concerns as the cost of living continues to rocket to heights not seen since 1992. Members in the minority preferred to increase the rate by 0.5% which would have brought the base rate to 0.75%.
The resilient labour market poses as a significant factor at play following a surprising bounce back after lockdown. According to the Office for National Statistics (ONS), the number of job vacancies rose to a new record figure of 1,247,000 in October to December 2021, leading to higher wage inflation.
Amongst recent inflation data and the strong job market as grounds to tighten monetary policy is the easing of covid restrictions across the UK. With the threat of Omicron variant dissolving and public confidence growing, it is expected that spending will go up and intensify inflationary pressures.
Read more: Understanding inflation, the base rate, and GDP
So, what is next?
The Bank of England governor has been called on to accelerate the process of bringing inflation down towards its 2% target. To avoid the inflation rate exceeding the projected April peak, economists predict a gradual and upward trajectory of the base rate this year, with market expectations currently pencilling in four rate rises.
Despite the uncertain economic environment, savers will benefit from increases in interest rates across the board. And while consumer prices soar, it is even more essential to ensure their cash deposits are earning a competitive rate of interest to offset costs as much as possible. One way of doing this is to shop around for the best rated accounts.
Putting savings in notice accounts (instead of fixed term) will give savers the flexibility to move cash around as rates change. Our data suggests there is a 1-2 month wait before banks start to pass on any increase in base rates onto their products, which means flexibility for your cash at this time is key.
On the Flagstone platform, we are seeing a number of banks increase their variable accounts interest rates in line with the Bank of England’s base rate rise. For example, Principality Building Society has increased their 30-day notice account to a rate of 0.80%.
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